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Like his father and grandfather before him, Donal Glennon has worked for Guinness all his life. He started at 16, as a messenger at the landmark St. James's Gate brewery in Dublin, and today, at 51, he's an accomplished brewer. His family ties to the beermaker stretch back nearly a century, to the days when 1 out of every 10 Dubliners either worked for Guinness or was supported by someone who did. The company was a classic paternalistic employer: it built affordable housing for its workers, and provided pensions, health care and education benefits long before they were the norm. Employees even received an allowance of free beer. "That aspect is gone — the caring, sharing company," says Glennon wistfully. "Everyone knows that you're just part of a multinational."
Maybe so, but in the cutthroat environment of today's beer market, being part of a multinational is all but essential. Most Western beer markets are flat — Guinness sales in Ireland fell 6% by volume from June 2003 to June 2004 — and more and more breweries are being snapped up by behemoths like London-based SABMiller and Belgium's InBev. Guinness is typical: since 1997 it's been a part of the British beverage conglomerate Diageo, which last week announced mixed financial results; it made $3.3 billion in operating profits for fiscal year 2004 which, if not for "exceptional items," would be down from the previous year. Some of its best-known brands — including Tanqueray, Jose Cuervo and J&B — are relatively stagnant. But the famous stout is fighting back by growing in markets like North America and Africa. Michael Bleakley, a beverage industry analyst with Credit Suisse First Boston in London, says of Guinness's global reach: "Everyone used to think that Heineken was the Coca-Cola of beers, but Guinness has cracked that now."
That's an optimistic view: Guinness, the world's best-selling stout, cannot touch Budweiser or Heineken in sales. Still, how has a 245-year-old brewer kept its edge in the modern world? The brewery at St. James's Gate still suffuses whole neighborhoods in the Irish capital with the rich smell of roasted barley, as it has for generations. The complex's old stone buildings are arranged to let beer flow downhill, so grain is stored at higher elevations while kegs are filled in low-lying areas next to Dublin's River Liffey. And the world-renowned stout is still as dark and creamy as ever. But little else about Guinness has stayed the same. The company has undergone a radical overhaul of its core brewing operations in recent years. Guinness decided in April to close its northwest London Park Royal brewery, which has been churning out the stuff since 1936. So by next June, production at St. James's Gate will jump from 8 million to 12 million kegs per year — all the Guinness stout for Europe and North America. In Dublin, pumping out an extra 11,000 kegs a day will cost j23 million in equipment and j14 million in annual production expenses, on top of j350 million spent on capital investments since the 1980s.
The new mechanized factory requires far fewer men like Glennon. Over the last two years, Guinness has almost halved the number of people who actually make and handle beer, reducing from 270 to 144. It has also eliminated traditional boundaries between classes of staff to the point where 90% of the remaining core workers have new or substantially changed jobs.
Such restructuring does not come easily, as Dublin brewing head David Varian acknowledges. "People had to face up to really major change," he says. "We ship Guinness to Japan. There are a lot of very good Japanese brewers, and they could probably brew Guinness." Varian, an Irishman who previously worked in the U.K. petrochemicals industry, strove to help his staff see the global picture; he dismantled long-standing hierarchies and gave employees challenging new tasks. Frontline personnel, like keg assembly-line operators and brew-house managers, now discuss departmental budgets.
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To monitor how people adapted, Guinness hired consultant Paul Williams, who has also worked for Microsoft and BP. Two days a week, Williams is free to wander the brewery, posing provocative questions. When a brewer says that he feels loyal to Guinness, for example, Williams asks whether he would still feel loyal if the company cut his salary in half — in order to challenge staff allegiances to that old idea of Guinness as a paternalistic employer. At first, "they were prouder about the product than about their performance," Williams says. After 18 months, employees feel less automatic allegiance to the iconic black pints of stout, and instead "feel ownership of the brewery itself." He credits Varian with "one of the major [organizational] changes in Western Europe in recent years."
Diageo clearly thinks the investment is worth it. Paul Walsh, who became Diageo ceo in 2000, is best known for dumping its Burger King holdings, but he kept Guinness because it is, arguably, Diageo's core business. The company doesn't provide specific figures, but analysts estimate that Guinness generates 15% of Diageo's revenues, or about $2.4 billion of the group's $15.9 billion annual revenues for the year ending June 30. Brian Duffy, chairman of Diageo Ireland, says that Guinness's financial performance is "extremely important" to its parent company. "The growth rates are pretty impressive outside of Europe, but the brand's home markets are still large," he says. "St. James's Gate is the home of Guinness. It is vital." Analysts agree. Bleakley estimates that Guinness's operations have a 20% return on invested capital, compared to 18% for Diageo's spirits, and 12% for most European brewers.
And there's room to grow; the 50 countries where Guinness is brewed have significant potential. (At most of those sites, other brewers are licensed to make the stout.) After St. James's Gate, Guinness's largest brewery is in Lagos.
Guinness has a secret weapon, though, which gives the company a strong incentive to stay at home: Ireland's 10% corporate tax rate, compared to 34.5% and roughly 38.3% for Guinness's rivals in the Netherlands and Germany. That would make it difficult for Diageo to justify selling its Dublin operations. If Guinness were an acquisition target, "you would never get the price to compensate for that," says Graeme Eadie, an Edinburgh-based beverage analyst at Deutsche Bank. And even if it no longer builds houses, Guinness is still known as a generous employer, providing complete health care for families of staff, and even paying for them to pursue university degrees. The Storehouse, Guinness's hugely popular visitor center, draws legions of tourists, and the company contributes to the local economy by providing office facilities in a spare building for start-up businesses.
In the brewery cafeteria, Varian points out the tables packed with retirees who eat for free, and who come in for the camaraderie as much as the food. "We've moved from a Guinness culture to a Diageo culture, without losing the Guinness culture," he says. "Nothing has changed, but in some ways everything has changed." For Glennon and the dozens of brewery staff like him, that means Guinness may still be a caring and sharing company for some time yet.
- BRIAN LAVERY | Dublin
- Ireland's iconic Guinness brewery makes radical changes to succeed in the global market